Legislative changes will mean that funded class actions
are not classed as managed investment schemes
Yesterday, the Minister for Corporate Law, Chris Bowen,
announced that the Federal Government would pass regulations to
clarify that litigation funded class actions are not managed
investment schemes under the Corporations Act 2001
The Government intends to draft regulations this financial year
to expressly exclude litigation funded class actions from the
definition of "managed investment schemes".
The announcement ends the uncertainty for litigation funded
class actions that arose from the Full Federal Court's October
2009 decision in Brookfield Multiplex Limited v International
Litigation Funding Partners Pte Ltd  FCAFC 147. In
effect, the Brookfield Multiplex decision found that the
retainer and funding agreements in that case (which are largely
replicated in all such funded class actions) satisfied the elements
of a managed investment scheme that required registration under the
Corporations Act. As such that class action, and similar
class actions, had been operated in contravention of the
The decision casts doubts over Australia's class action
"industry" for both existing and potential class actions
and potentially hindered the increased prevalence of shareholder
class actions which are usually founded on allegations of breach of
the ASX continuous disclosure regime.
In response to Brookfield, the Australian Securities
and Investments Commission (ASIC) announced in November 2009 that
it would provide transitional relief up until 30 June 2010 to
litigation funded class actions affected by the findings in
Brookfield. However that relief was automatically granted
only to class actions commenced before 4 November 2009 and any
class actions commenced after that date had to apply to ASIC for an
exemption. There have been reports that numerous such exemption
applications have been refused by ASIC and of litigation funders
refusing to pursue class actions on behalf of retail investors (as
managed investment schemes on behalf of sophisticated and
professional investors do not require registration). In effect, it
meant the "mums and dads" of the shareholder world were
likely be shut out of any new class actions.
The Minister has signalled an intention to have the new
regulations in place before the expiration of ASIC's temporary
relief on 30 June 2010.
Whilst the proposed new regulations have not yet been released,
it would appear from the Minister's comments that the
Government has decided to take a "minimalist" approach to
the decision in Brookfield. It seems the Government simply
intends to exclude litigation funded class actions from relevant
provisions of the Corporations Act so that such funders
can avoid bearing the burden of the prudential and reporting
obligations that the operators of managed investment schemes must
bear. As such it would appear that the Government's desire to
ensure continuing access to justice via the class action mechanism
has outweighed any competing desire to increase levels of
accountability and transparency applicable to those running such
The Minister has flagged some other regulations to protect
claimants from the consequences of potential conflicts of interest
that may arise from the involvement of litigation funders and
lawyers (with their own financial interest in the litigation)
negotiating financial settlements to class actions.
But it would not appear that Brookfield will be the
catalyst for wider reform of the role of litigation funders or
class actions generally, despite the fact that there have been
numerous calls for such reform, including in the paper released by
the Federal Attorney-General's Access to Justice Taskforce in
September last year. Also, those hoping for legislative guidance on
uncertain issue of proving causation in shareholder class
actions are likely to be disappointed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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